Ramon and Sophie are the sole shareholders of Gull Corporation. Ramon and Sophie each have a basis of $100,000 in their 2,000 shares of Gull common stock. When its E & P was $700,000, Gull Corporation issued a preferred stock dividend on the common shares of Ramon and Sophie, giving each 1,000 shares of preferred stock with a par value of $100 per share. At the time of the stock dividend, fair market value of one share of common stock was $150 and fair market value of one share of preferred stock was $75. If an amount is zero, enter "0".

Question Content Area

a. What are the tax consequences of the distribution to Ramon and Sophie?

Ramon and Sophie have neither gain nor loss in the amount of $ 0

What is the basis for the common stock and preferred stock for each shareholder?

Common stock: $______

Preferred stock: $______